Glenn Garvin

Glenn Garvin: Lessons of Puerto Rico’s painful crisis

FEELING THE PAIN: Many businesses have closed in San Juan’s once bustling Rio Piedras shopping area as a result of Puerto Rico’s debt crisis.
FEELING THE PAIN: Many businesses have closed in San Juan’s once bustling Rio Piedras shopping area as a result of Puerto Rico’s debt crisis. AP

Americans don’t understand Greece very well. I discovered this on a visit to Athens, when I had trouble getting restaurants to serve me a bottle of retsina, the Greek wine that’s flavored with pine resin, making it taste a bit like, well, turpentine — but in the best possible way.

But Greek waiters, it appeared, would rather eat a bug while standing on their heads naked than open me a bottle of retsina. “We have a selection of lovely California wines” seemed to be the national restaurant mantra. At the end of yet another exasperated and unsuccessful attempt to order it, I asked a waiter: “Why is it easier to get retsina in Miami than in Athens?”

His eyes widened. “You’ve tasted retsina? And you like it?” he asked me. “Why else would I be ordering it?” I replied. “Oh, great, I’ll bring you a bottle,” the waiter exclaimed. “We don’t like to serve it to Americans because when they taste it, they think it’s spoiled, and they send it back and refuse to pay.”

So if we can’t even figure out Greek wine, I doubt if we’re really going to learn many lessons from the country’s dive off the economic cliff over the weekend. Happily, we’ve got an economic crisis right here in the United States — in Puerto Rico, which is on the verge of defaulting on $72 billion of government debt — that’s just chock full of good, scary lessons about international finance.

And unlike this stuff in Greece, which is mostly worrisome to French and Germans and such-like, Puerto Rico’s looming bondpocalypse actually affects us. Some of that $72 billion that’s about to go up in smoke is probably coming right out of your 401(k).

About 70 percent of U.S. mutual funds own Puerto Rican bonds, says the investment research company Morningstar.

So, learn away:

▪ Don’t borrow money on your credit card to pay your mortgage bill. That’s essentially what Puerto Rico was doing. It sold a bunch of bonds it couldn’t afford, then sold a bunch more to make payments on the earlier ones.

Bottom line: The government now owes about $10,600 per Puerto Rican — about 10 times the debt of the average American state.

▪ Never play Monopoly with the government. One of the heaviest stones around Puerto Rico’s neck is its electric monopoly PREPA, which despite all its borrowing (over $9 billion) has a shoddy infrastructure that produces electricity at a price of 22 cents a kilowatt hour, double the rate in the mainland United States.

To be fair, that’s not all due to government inefficiency. There’s also government cupidity to take into account. Politically connected customers like the hotel industry get subsidies that reduce their rates to practically — and sometimes literally — zero. Small wonder that large numbers of ordinary households, who are billed at the full rate, are either stealing electricity with illegal connections or simply refusing to pay their bills.

▪ Workers go where the money is, especially if it’s home in bed. One big reason Puerto Rico can’t pay its debts is that so few of its citizens are paying taxes because they aren’t working.

Only about 40 percent of adult Puerto Ricans have jobs or are looking for them. One reason for that: For many of them, welfare literally pays better. A Puerto Rican household of three that’s eligible for food stamps, Medicaid, aid for dependent children and utility subsidies can take home $1,743 a month, compared to $1,159 for holding a minimum-wage job.

▪ So why not just raise the minimum wage? Because that would throw even more people out of work — and it’s not just the greedheads at McDonald’s and Burger King saying so. Absolutely the most fascinating thing about Puerto Rico’s economic crisis is that it’s forcing recognition that there really are consequences to increasing the minimum wage.

Though the island has the same federal minimum wage as the mainland United States, $7.25 an hour, that’s a big salary in the island’s depressed economy — about 77 percent of the average pay rate, as opposed to about 28 percent on the mainland. It’s as if minimum wage in the rest of the United States were raised to $19 an hour.

As a Puerto Rican government report admitted last month, “The high minimum wage raises the cost of employment and prices many employers out of the market, causing unemployment to rise and thus tax revenue to dry up.”

The report, written by three economists associated with the World Bank or the International Monetary Fund, recommends Puerto Rico be exempted from federal minimum-wage law.

You think Washington will listen? That brings us to our final lesson: When Pigs Fly.

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